1. LECTURE 3 : EMPLOYMENT INCOME (TYPES)
TAX 1 DAC 3153
LECTURE 3 : EMPLOYMENT INCOME (TYPES)

2. INTRODUCTION (Section 13 (1) of the Income Tax Act categorizes various types of employment income into subsections (a) to (e))
SECTION 13(1)(a)
- " (1)gross income of an employee in respect of gains or profits from an employment includes:
(a) any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment"
- "having or exercising" - covers remuneration received for holding an office. any benefit whether received directly or indirectly by an employee from an employer or non-employer would be treated as gross income from an employment under this section.
- comprises income that convertible into money:
a) amount received in the ordinary courses of employment (may or may not be from employer)
b) must take reference to services rendered in the past, present and future.
c) the employee is entitled to the payment.
* from section 13 (1)(a) to section 13 (1)(e) the tax treatment will be different.

3. Section 13(1)(a)
BONUS: - bonus paid in addition to the salary. it can be contractual or non- contractual. - the amount can be fixed or contingent subject to the profit of the company. - paid by reference of service rendered. - true nature and characteristic should be examined. - paid on recurring basis. if being paid once and for all to mark for excellence or an individual, it would not be taxed as bonus but is capital in nature.

4. Section 13(1)(a)
GRATUITY: - 'money present of amount fixed by giver in recognition of an inferior's good office" - normally paid upon resignation or retirement from the employment after serving a long period of service. GRATUITY VS GIFT: - gratuity is treated as part of income under this section, gift is not. EXEMPTION OF GRATUITY: - employee receiving gratuity on retirement from an employment would be EXEMPTED from income tax under any one of the following circumstances: a) Ill health: b) On or after reaching the age of 55/reaching the compulsary age of retirement - being with the same employer/companies in the same group for ten years (continous period immediately prior to retirement)

5. Section 13(1)(a)
c) age 50 but before years service with the same employers/companies in the same group. d) Government Servant - retirement, gratuity paid out or payment in lieu of leave. SHARE OPTIONS AND SHARE INCENTIVE SCHEME: - allows an employee to an option to acquire shares in a company at a fixed price and with a right to exercise the option at the same date. - amount to be recognised under section 13(1)(a)- any excess of the market price over the option price at the time the option was granted. - To compute the perquisite value - Section 32 (1A) a) market value at the time the option was granted (exercisable) b) market value at the time the option was exercised. - From the YA 2006, the perquisite is taxed in the year the option was exercised.

6. Section 13(1)(a) ALLOWANCES
1. clothing allowance - the employer paid the employees for clothing allowance. - liable to tax.
2. travelling and entertainment allowance - assessable on gross amount. if the employees incur any expense in performing duties, the expense will be deductable against the gross income in arriving to the adjusted income from employment.
3. Gift vouchers - where gift vouchers given during the festival based on length of service of employees, it is taxable.

7. Section 13(1)(a) Loan to Employees:
1. Internal fund - loan is made out of the internal fund of the employer such as from business profit or share capital - it is not taxable.
2. External fund - employer borrows from bank or related company in order to provide the loan to the employees - employee would be taxed.
- taxable amount is the interest expenses paid by the employer.
- if the employee paid interest in respect of the loan from the employer, the amount taxable would be :
(interest cost incurred by the employer) - (amount of interest paid by the employee)

8. Section 13(1)(a) School / Tuition Fees Insurance Premium
actual expenses incurred by the employer (direct payment or reimbursement to an employee) on the school/tuition fees of the children (studying in/outside Msia) would be taxed.
School/tuition fees of the employee - not taxable. (provided that the course has to be directly related to the current service of employee)
Insurance Premium
employer incurs insurance premium on the life of the employee and if the employee, employee's family or their appointed nominees are the beneficiaries of the policy - annual premium paid would be taxable.
SOCSO/contribution to healthcare of the employee - tax exempt.

9. Section 13 (1)(a) PERSONAL COMPUTERS AND BROADBAND SUBSCRIPTION FEES:
- one unit of new personal computer (Desktop/laptop/handheld computers)
- monthly broadband subscription fees registered in the name of employer.
GIFT OF PERSONAL COMPUTERS - the market value of the personal computer is taxable.
PROFESSIONAL SUBSCRIPTION:
- If it is to enhance the employees knowledge and to facilitate the carrying out of the employees duties - not taxed.
- if not directly contributed to the business - taxed.

10. Section 13 (1)(a) EXCELLENT PUBLIC SERVICE AWARD
- This performance awards are given to the employees of public sector in monetary form - taxable.
EXCELLENT SERVICE
- Payment in appreciation of excellence service - taxable.
- tax exempt RM2,000 for each employee for YA if:
a) long service award (exercised employment for at least 10 years with the same employer)
b) past achievement award
c) service excellence, innovation or productivity award.

11. Section 13(1)(a) CREDIT CARD FACILITIES
- if provided by employers to employees to facilitate the carrying on of the duties and also for private purchases - annual membership fees and amount paid for private purchases will be taxed.
- would not be taxed if - such credit card is used exclusively for performing his duties including entertaining the employer's customers.
SCHOLARSHIP:
- tax-exempt whether or not that the scholarship connected to the employment.
- salary paid during study leave is taxable.
ASSET PROVIDED FREE OF CHARGE OR SOLD AT DISCOUNTED PRICE:
- taxable value would be:
Market value xxx
Less: Amount paid by employee (xx)
Perquisite S 13(1)(a) xxx

12. Section 13 (1)(b)
"13(1) gross income of an employee in respect of gains or profits from an employment includes: -
(b) an amount equal to the value of the use or enjoyment by the employee of any benefit or amenity (not convertible into money) provided for the employee by the employer.
- benefits in kind(BIK) - not convertible into money - benefits that cannot be sold, assigned or exchanged for cash due to the employment contract or the nature of the benefit itself.
DISTINCTION BETWEEN S 13(1)(a) and 13(1)(b)
(b) - covers benefits that are not convertible into money or does not have an exact monetary value (furniture, mobile phone, uniforms)
(a) - income that are convertible into money (salaries, fees, commissions, bonus)

13. Cost of the car (when new) Annual value of private usage (RM)
Section 13 (1)(b)
MOTOR VEHICLE AND RELATED BENEFITS.
- Prescribed method for motor vehicle:
Cost of the car (when new)
Annual value of private usage (RM)
Fuel per annum
(RM)
up to 50,000
1,200
600
RM 50,001 - RM75,000
2,400
900
RM75,001 - RM100,000
3,600
RM100,001 - RM 150,000
5,000
1,500
RM150,001 - RM 200,000
7,000
1,800
RM200,001 - RM 250,000
9,000
2,100
RM250,001 - RM 350,000
15,000
RM350,000 - RM 500,000
21,250
2,700
RM500,001 and above
25,000
3,000

14. Section 13 (1)(b) PROVISION OF DRIVER
- RM 600 per month. - the actual salary is not relevant.
- if driver is solely for business - not taxed.
AGE OF CAR EXCEEDS 5 YEARS - value of private usage would be reduced by half. (fuel remain unchanged)
PROPORTIONMENT - allows proportionment if the usage not for a full year.
FUEL NOT PROVIDED - only the annual value of private usage will be taxed.
FUEL PROVIDED WITHOUT CAR - fuel related to private usage will be taxed.

15. Section 13 (1)(b)
- formula method for car benefit:
Cost of the motorcar % = Annual value of car benefit
Prescribed average lifespan of asset
- prescribe average lifespan for car is 8 years.
- tax authority would not discount the value of car benefit eventhough the car is more than 5 years if the taxable person elected to use the the formula method.

16. = Annual value of benefit
Section 13 (1)(b)
HOUSEHOLD FURNITURE AND APPLIANCES:
- formula method:
Cost of the asset providing benefit
Prescribed average lifespan of asset
- prescribe average lifespan for car is 8 years.
- tax authority would not discount the value of car benefit eventhough the car is more than 5 years.
- prescibed lifespan -
1. Furniture and fittings
- Curtains and carpet = 5
- Furniture, sewing machine = 15
- Air - conditioner = 8
- Refrigerator = 10
= Annual value of benefit

17. Section 13 (1)(b) HOUSEHOLD FURNITURE AND APPLIANCES:
- prescribed value method:
values of benefits in respect of household furnishings, equipment and appliances are:
i. semi-furnished with furniture in the lounge, dining room or bedrooms - RM 70/month (RM 840 per annum)
ii. semi-furnished with furniture as in (i) plus one or more of the following: air-cond, curtains or carpets - RM 140/month (RM 1,680 per annum)
iii. fully-furnished with benefits in (i) and (iii) plus one or more of: kitchen equipment, crokery, utensils and appliances - RM 280/month (RM 3,360 per annum)

18. Section 13 (1)(b) UTILITIES:
- service charges and utilities bills are under employer's name and paid by employer will be taxed.
MEMBERSHIP IN RECREATION CLUB:
- INDIVIDUAL MEMBERSHIP - membership owned by individual - entrance fee, annual membership fee and term membership fee paid by employer will be assessed to tax.
- CORPORATE MEMBERSHIP
i) entrance fee will not subject to tax.
ii) monthly or annual subscription will be assessed to tax.
GARDENER/DOMESTIC SERVANT/GUARD:
- if provided by the employer:
i. gardener - RM 3,600 per annum.
ii. Domestic servant - RM 4,800 per annum.

19. Section 13 (1)(b) MEDICAL, DENTAL TREATMENT, AND CHILD CARE BENEFIT:
- exempted.
LEAVE PASSAGE:
- the benefit enjoyed by employees and members of his immediate family is tax exempt subject to the limit of:
a) 3 leave passage for travel within Malaysia.
b) one leave passage for travel between Malaysia and any place outside Malaysia. Amount is limited to RM 3,000
- meals and accomodation provided by employer are exempted.

20. Section 13(1)(c)
amount in respect of the use or enjoyment by the employee of living accomodation in Malaysia provided by the employee by or on behalf of the employer.
only the value of unfurnished living accomodation provided (without rental value of furniture) will be assessed under S13(1)(c)
Furniture provided will be assessed under S13(1)(b).
Amount assessed will be either:
Defined value of living accomodation; or
30% of the employees' gross income under S13(1)(a)
whichever is lower.

21. Section 13(1)(d)
contribution made by employer to the unapproved pension or provident fund, scheme or society.
any income earned (interest/bonus) by such unapproved fund and credited to the employee.
- the amount would be assessed in the year of withdrawal from such unapproved fund, scheme or society.

22. Section 13(1)(b) gross income assessed in respect of:
any amount received by the employee, whether before or after his employment ceases, by way of compensation for loss of the employment in respect of:
salary or wages in lieu of notice.
compensation for breach of contract of service.
payment for the release of employer's obligation under contract of service.
retrenchment payment, severance pay, gratuity made to employees who have become redundant.
restrictive covenant.

23. Section 13(1)(e) Exemption Total Exemption Partial exemption
RM10,000 for each completed year of
service with the same employer or
companies in the same group.
(with effect from 1 July 2008)
Ill-Health